Period  3Q15/9M15

Actual vs. Expectations  Net profit of RM143.8m (+18.6%) was within expectations at approximately 75% of both our and consensus’ forecasts.

Dividends  None as expected.

Key Results Highlights  YoY, revenue rose 10.4% to RM2.0b, driven by all operating segments, namely Integrated Livestock Farming (ILF), Marine Product Manufacturing (MPM) segments, and Palm Oil Activities (POA). Meanwhile, PBT recorded impressive growth of 19.8% to RM187.2m, again underpinned by balanced growth across all division. MPM division benefited from higher average fishmeal price (+ 22.3%) and robust demand of surimi-based products; ILF segment was aided by lower feedstock costs and higher egg prices, as well as stronger demand for the feedstock; while POA division saw narrowed losses from Indonesia operations and higher contribution from Boilermech (+27%).

 QoQ, 3Q15 PBT grew 19.8% to RM74.6m on the back of higher revenue (+11.6%) amounting to RM732.8m thanks to steady growth of its core ILF and MPM divisions with revenue growth of 16% and 10%, respectively. During the period, MPM managed to record PBT growth of 27.6% due to the higher production on seasonality as well as higher fishmeal prices (+11%). Meanwhile, ILF also registered eyecatching growth of 18.8% due to the higher raw material trading volume as well as higher egg prices (+12.8%) during the quarter, and further helped by the easing of feedstock prices.

Outlook  The Group is well on track to meet our earnings forecast which reflects 19% of net profit growth, driven by growth across all division.

 Moving forward, we expect the earnings growth momentum to be sustained, banking on the core operating segments, ILF and MPM which contributed 92.6% to the Group’s PBT as of 9M15.

 We expect the robust demand of surimi-based products and the higher fishmeal prices to drive the ILF division while MPM is poised to benefit from the lower feedstock prices on the back of the easing of commodities prices, namely maize and soybean, as well as the higher egg prices.

Change to Forecasts  No changes to forecasts.

Rating Downgrade to MARKET PERFORM (from OUTPERFORM)

Valuation  We roll over our valuation to FY16 before deriving our higher Target Price of RM3.90 (from RM3.86) by pegging it with an unchanged 22.7x PER, which implies +1.5 SD over 3-year mean. While we like QL for its exciting and stable earnings growth, we think that the share price could have factored in the positives. Potential upside is limited from our TP, thus we downgrade the stock to Market Perform.

Risks to Our Call  Higher-than-expected egg prices

 Lower-than-expected production costs 

Source: Kenanga